Media companies have ditched convergence for cost savings, claims EY

The wave of mergers and acquisitions in the media industry has done little to move the industry towards convergence on broadcast, mobile and internet content, a survey by consulting firm EY claims.

EY’s 18th capital confidence barometer found 95% of Australia’s media, entertainment and telecommunications’ companies are looking to divest their non-core assets over the next 12 months to reduce costs, rather than integrate services.

At Mumbrella360 last month, News Corp executive chairman Michael Miller, flagged his company is one of those looking at acquisitions.

Miller said the government’s media reforms had seen various companies look at the prospects of buying and selling, but there are a number of significant barriers to larger Australian media companies expanding.

Those barriers have not stopped the out of home industry from its consolidation with Ooh Media set to acquire street furniture business Adshel for $570 million and French giant JC Decaux looking to buy APN Outdoor for $1.1bn.

In the Ooh Media deal, CEO Brendan Cook later said he expects around $18m in costs savings from merging Adshel’s operations.

Ishwar Madhyastha, EY’s Oceania lead for TMT Transaction Advisory Services, said: “Most of these deals have been driving industry consolidation – not convergence.”

“Local media and entertainment companies are either shedding businesses that no longer fit in core strategy or are making ‘synergistic’ acquisitions to extend the lifespan of their assets.”

Madhyastha says the industry will see more consolidation over the next six months.

“This will push smaller firms towards value chain niches and see large M&E companies seeking even greater scale, deeper customer knowledge and comprehensive end-to-end solutions,” he said.

“We have seen this already occurring with global media companies, using local acquisitions as the gateway for new on demand services. At the same time, traditional media businesses, including magazines and outdoor advertising, will continue to shuffle assets quickly to gain synergies from their existing portfolios.”

Globally, more 56% of global TMT respondents said they intend to pursue acquisitions in the coming year while three-quarters of technology and media and entertainment companies reported they had identified “at-risk” or underperforming assets to divest.

Despite the current focus on consolidation, within the next 12 months, Madhyastha anticipates transactions will once more begin to focus on the convergence of content and distribution.

“Technology has made it possible to facilitate convergent offerings. Whilst customers are no longer bound by the traditional linear value chain, they can directly access content producers, aggregators and distributors, helping to drive convergence deals.”

“For example, as mobile technology continues along its S curve, we will see increasing pressure for convergence among M&E and telcos. The attempted media/telco merger in New Zealand will not be the last.

‘If regulators don’t come to the party, we can expect the rapid growth of tightly integrated strategic alliances and partnerships across the TMT sector, where partners share data, jointly develop products and offerings, and co-build ecosystems and platforms.”

“I also expect tech companies with large content appetites to target M&E acquisitions and appropriate telco customer demand with apps and services,” he said.

“We will also see acquisitions of start-ups to position for anticipated future high-growth markets. These will likely be targets with strategic technology elements, disruptive digital business models, hard-to-find talent or some a combination of the three. Consolidation may have run its course – bring on convergence!”


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